Real estate agents feel the housing chill

By Leith van Onselen

Over the past year, I have written extensively on the economy-wide implications of Australia’s slowing housing market including, amongst other things, worsening government finances, slowing retail sales, and lower jobs growth.

On Friday, RP Data posted an interesting blog about the pain being felt by the real estate industry from falling transaction volumes and lower house prices:

The real estate industry is doing it tough. Transaction volumes last year were about 13% lower than 2010, 26% lower than 2009 and 33% lower than the recent highs of 2007. A slightly larger decrease applies to real estate agent commissions, due to the fact that agents are generally paid based on percentage of the sale price; falls in home values have compounded the pain already caused by slow market conditions.

Based on the total value of sales in 2011, which were down 18.3% compared with 2010; agent commissions are likely to be down about the same amount.


At the same time, according to the latest IBISWorld Real Estate Industry report, the number of people employed in the industry has fallen by around 1,800 over the past year after rising by 940 employees in 2010/11. The reduced number of agents suggests the commission pie needs to be cut into fewer slices, which is likely to have eased the income fall on a per agent basis. In fact, the report suggests that income per employee in the real estate industry hasn’t change a great deal over the past four years, remaining around $59,000 since 2008 after generally trending down since 2002.


Lower housing transaction volumes are the main culprit in the overall squeeze on real estate agents’ commissions. As shown by the below chart, housing transfers in Western Australia, Queensland and Victoria are well below average levels, whereas New South Wales’ transfers are at average levels, thanks in part to the recent surge in activity as first home buyers rushed to beat the 31 December expiry of stamp duty concessions:

The overall lower transaction volumes, combined with falling home prices, has meant that the total value of housing sales are at the lowest level in at least 11 years in inflation-adjusted terms:

And the total value of home sales in 2011 were -5% below the 11-year average in nominal terms, but a whopping -17% below the average in real (inflation-adjusted) terms:

According to the Australian Bureau of Statistics (ABS), property and business services – which includes the real estate industry – is a major employer in Australia, employing nearly 1.5 million workers in 2010, or 13% of the workforce. Unless there is a sustained increase in housing-related activity, we should expect further retrenchment in not just the real estate industry, but also the financial sector, housing construction, and potentially government agencies as stamp duty revenues contract.

The ABS housing finance commitments, which are due for release this morning, should provide a solid indication of where the housing market is headed. Our leading indicator, AFG origination data, is not particularly encouraging for either December or January.

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  1. “According to the Australian Bureau of Statistics (ABS), property and business services – which includes the real estate industry – is a major employer in Australia, employing nearly 1.5 million workers in 2010, or 13% of the workforce. Unless there is a sustained increase in housing-related activity, we should expect further retrenchment in not just the real estate industry, but also the financial sector, housing construction, and potentially government agencies as stamp duty revenues collapse.”

    Then with the high dollar add tourism, education sector, manufacturing and retail. Bring it on lets get the correction under way. Its going to happen sooner or later. I dont feel sorry for the RE agents who do nothing but spruik the market. Karma is finally catching up with them. Especailly that blonde lady who posed as a FHB in two papers in two states. She deserves it.

    • to be fair to that blond lady there is good evidence she was a party to the first transgression, but there does not appear to be any evidence she was a willing participant in the second instance….someone may have used her photo without consent.

      • Russell if she did it the first time what makes you think she didnt do it the second time. She knew all about it. Anways the point is I hope all spruiking RE agents suffer for the mess they caused. They arent the only people but they have been a big cause of it.

    • ‘I dont feel sorry for the RE agents who do nothing but spruik the market. Karma is finally catching up with them.’

      In the course of our work, whatever we all do, we will be useless/ be made to feel useless/ contribute to a national problem/be made to feel like we contributed. Since this is an economics blog, for the sake of all humans involved (and their families), we should restrict our comments to an impartial critique, don’t you reckon?

      • I disagree – if expression of lack of sympathy is to be avoided, it follows that expression of sympathy is also to be avoided.

        Also if members of the community are going to behave fraudulently, they deserve to be called out for it (in my entirely partial view).

        • That’s the point, Merk. Avoid sympathy or the lack of it in a critique. If people behave fraudulently, call them for it, but let’s stick to macro-economics, not the sort of blanket criticism you’d find on other less august blogs. There’s only one or two left that are worth reading for the intelligent and impartial critique of the economy – let’s not spoil this one!

          Prince, where are you? Avoiding trolls is surely not the only arbitration required here.

          • You have a good point runningman.

            I think we need to repost the comment rules again, since we have a huge influx of traffic (today probably will be a record) and new commenters.

            And maybe another explanation (as we did last year as short traders gloated over their positions during the share market correction).

          • Prince: “To hell with you! I will not fire on unleveraged commenters!”

            Runningman, great movie.. Protip: Don’t feed the trolls!

    • dumb_non_economist

      She may not even have known how the photo was to be used in the 1st instance, let alone the second. No one knows what she was told and we don’t know where she was expecting it to be used!

  2. V good analyis and charts. I will print and put on my letterbox for the agents who drop their leaflets once a week declaring they are selling more properties at higher rates and I should sell my property with them.

  3. There’s an obvious way to stimulate sales and capture more stamp duty etc., but it is not in the interest of real estate agents to contemplate that action. Real Estate Agents have fallen for their own spin; and I don’t know any that do not have a property portfolio of their own (some are 100+ properties). So the obvious course of action – drop prices to attract the buyers, as most other assets do to create turnover- is not going to be a call that comes from the R/E industry.

    • Good – that will speed up the property crash and it will not work as buyers behaviour in the face of asset deflation is psychologically different. It is not simply a case of applying a simplistic supply and demand model. Buyers actually leave the market totally under these circumstances.

      It is also a myth that when prices drop it will become ‘easier’ to buy. At the same time prices fall banks tighten up lending.

  4. Speaking from the West. Melb. mortgage belt – the new black is ‘fixed price’ sales from a couple of newish RE agents on the block – to the point that I get a generous offer on my windshield at the train station every week or so.

    I’m pretty sure that ~500 to 700 dollar per sale revenue cannot be sustainable for long…

    • There are also guys helping to side-step agents altogether. will list your property on all the agent-only sales websites for about $400, and you do the work showing open homes and negotiating the contract.

      Australia has too many real estate agents, so this adjustment will be positive in the long term. In the short term, there will be some pain.

  5. Their whole business model is under threat. I have a “for sale” sign out the front of the house am renting from these guys: (they already have over 500 properties for sale

    I worked as a real estate agent a for a few months couple of years back but bailed because the writing was on the wall for the housing market.

    A web based business model like the above will destroy them, the only work is in preparing the section 32 which someone else does, photos are about $200, a board, someone to do the walk you make the client pay for their own advertising anyway..

    • It is easier for someone like you who has had experience to sell their own home, but what about John & Jane Smith who work and don’t have time to follow the real estate market?

      Buyers agents and professional investors will enter these properties being sold by the un-educated owners and rip them off potentially 10’s of thousands of dollars. These owners might not know how to negotiate and spending 10k-15k on agent definitely removes the hassle and possibility of being ripped off.

      Using an agent doesn’t always mean you won’t get ripped off but it does help owners get the best price for their property.

      • I hope you are being ironic, otherwise that is classic RE agent guff.

        This is not a properly functioning market, it is completely gamed by the agents – there is no way a RE agent can prove they would realise the ‘best’ price for the property relative to an owner doing it themselves. There is no way to even accurately assess what the correct ‘market’ price is. If in doubt, the RE agent will end up setting the price to ensure they get a sale, with all of the psychological conditioning of the seller this entails.

        The bottom line is that RE agents are massively overpaid for what they do and relative to the time they spend on a sale. Sellers who spurn their services are behaving perfectly rationally. This is one industry I would be happy to see decimated, and the next decade should hopefully see that come to pass.

        • I agree that they get paid too much for what they do but for the majority of people, their home is their biggest asset.

          If people want to go ahead and sell their biggest asset on their own without help and only spending $400 on a internet add then go ahead.

          You will get mauled by the investors, they will condition you to take offers well below the asking price. But an agent on the other hand gives you a price of what they think your properties worth. If you agree then that’s when you sign the agent up. The agent has a goal to work towards in achieving the initial quoted price to the owner. If this price is not achieved then the owner can reject it and pick up another agent later on if the initial agent is not doing their job.

          Yes lots of agents are shoddy, poor and bad at their job, relying on the property to sell itself but your delusional if you think “selling it yourself” websites will destroy the industry.

          • With 90 minutes of research (less time than they will spend listening to prospective RE agents bludgeon them about their ‘successful’ marketing approaches) a seller can establish a ‘market’ price for their property based on easily accessible, publicly available data. I would suggest that it is pretty easy to avoid getting mauled by investors – as easy as reading a $25 book on negotiating tactics, and practising saying ‘No’.

            I think the industry has already planted the seeds of its own destruction. A happy medium is going to have to come to pass, whereby the traditional RE model has to close the pricing gap between their own overinflated commission structure and the cheap DIY internet listings/Go Gekko style service offering. This will mean a smaller pool of commissions, and by reason the industry will sustain far fewer agents. And that will be a great thing for our society.

            During that transition period, though, expect every status quo seeking RE agent and their secretary to keep banging on about ‘your most valuable asset’ and fomenting fear about maulings from rapacious investors.

          • Mining BoganMEMBER

            Word spleenblatt.

            The information is there if you look and take a bit of time. My fellow bogans ask me all the time where I got my numbers. I walk over to the computer and show them google.

            By the looks on their faces you would think that I pulled a dragon out of my arse and started face-painting it.

          • Thanks spleenblatt and Mining Bogan. My lunch is now all over my screen after picturing would-be sellers saying ‘no’ in front of the mirror, and the face-painting of arse dragons…

            Completely agree – for those with some sense and who are willing to do the research, the process should be fairly straightforward.

          • dumb_non_economist

            Lots of people would find it intimidating to have to deal with potential buyers/sellers and would also find it difficult to do the research to be properly informed.

            Not everyone is “MB Qualified!”

          • Mining BoganMEMBER

            Pfft to you Dumbo.

            I play golf with real estate types all the time. Once you’ve picked them up up for cheating on the links a few times you know how to deal with them.

            Dealing with real people with emotions is much easier.

            Oh, by the way. In my opinion, noone cheats as much on a golf course as RE types do. Noone.

          • DNE
            I appreciate that some demand will always exist for the ‘facilitation’ that RE agents can offer – I just think the premium charged for that particular ‘skill’ is off the charts. If they were to charge on an hourly rate similar to other property related consulting professionals such as say, building certifiers or draftspeople, then their fees would rightly be more in the order of $3k

          • Of course real estate agents get paid too much, but people don’t usually spend enough on other professionals when buying a home. They’d prefer to have some pimply teen from ‘Cut Price Conveyancing’ do the work than pay a lawyer. They go with the cheapest of the cheap building inspectors who does little more than a walk-through. They don’t bother with the searches you can get done because it’s too expensive. You’re going to drop $500K on a house and a check of the contaminated lands register for $20 is too much?!

        • Good observation. The property market is fixed and manipulated and these new virtual models may help. Also there is a lot of ‘stuff’ that RE’s do that could be automated as an online service. The Internet is changing everyone else’s business model so it will change the property industry.

          • roylefamilyMEMBER

            In 97 my sister in law was working as an agent. We where looking for a house to buy so she gave us the “Agents Only” list of addresses and prices for Prahran. With this I set of walking and had the market sussed in a couple of days. Bought a place for a fair price and that was that. This information is withheld from the public and that is a scandal. It is public information sourced from the state revenue office. It is owned by us but denied us.

      • Hilarious. That’s the funniest thing I’ve read in a while. The mean part of me thought ‘good’ when I read this post. I’m so sick of the disgusting greed and nonsense that comes the average real estate agent.
        If you don’t believe a major shakeup is coming, go ask a stockbroker from the 90’s or a recruitment consultant from early 2000 and ask them what the Internet did to their commission structure.

  6. the report suggests that income per employee in the real estate industry hasn’t change a great deal over the past four years, remaining around $59,000 since 2008 after generally trending down since 2002.
    With such a low income, how will the REAs be able to afford the balloon payments on their German cars – BMWs, Audis and Mercs? I think auto finance companies need to start worrying about this.

    • With such a low income, how will the REAs be able to afford the balloon payments on their German cars – BMWs, Audis and Mercs? I think auto finance companies need to start worrying about this.

      I used to have same question but then it hits me that I have seen an example of two different biases, i.e.:

      1) You may only look at properties in your favorite suburbs where you plan to buy and live. Those suburbs may be quite “up-market” and subject to irrational price inflation and therefore, it will be no surprise if the R/E agents covering those suburbs are “over-achievers” compared to their colleagues in not so hot suburbs / regions and can afford Audi car at least, or Benz / BMW ones as a norm. Think of R/E agents in Sydney North Shore and Eastern suburbs and you will understand.

      2) Those hot properties in hot suburbs above usually are handled by more senior agent compared to the properties in not so hot areas and therefore, again no surprise here that you see a lot of them riding BMWs and Audis. There was one time I was surprised when I took a look at a property inspection in quite good suburb but the property was not considered “good” and the R/E agent was a junior one (maybe in early 20s) and he drove an old, small Daihatsu car 😉

    • dumb_non_economist

      I’d take the average with a pinch of salt, maybe in the distant ‘burbs. A decade ago a local agent who attempted to sell me the house we bought 1st time around was making over 200k pa.
      Had a sister who was in the large block development (5 acres etc) and there is/was a huge turnover of RE agents who only last a couple of years and pull the pin as it isn’t easy making the top money. I think this pulls the av down.

  7. The declining sales numbers are most telling. It’s like all the Holden and Ford car dealers decided to sell Mercs & BMWs instead, relying on ever bigger profits per car, rather than volume.

    With a growing population, I would have expected to see the sales numbers trending steadily up over the past decade.

  8. Willing to give a cookie to anyone who can point to hard figures/statistics outlining how many agents are in the industry around Australia?

    I have been looking for the last few weeks but with 0 luck. I have a broad statement from the head of the AREI claiming that there were 50,000 agents nation wide but this all I could find.

    Does anyone have any data about how many agents are currently in the industry and how many existed in previous years?


  9. I heard many years ago that there were 100+ real estate agents on the Gold Coast and not one of them ever had finanical difficulty or went broke (this was in the early 90’s). I’m guessing that this is no longer the case as from your charts QLD appears to be the hardest hit in terms of values/turnover.

  10. I don’t understand this whole argument where growing population equals growing prices. Depends on the price of housing. Migrants arriving usually have education/skills required by our economy. They can apply for jobs but they are not cashed up. If they are cashed up, they are already doing well and probably staying where they are. So most of arriving migrants are in the same situation as young Australian families who were priced out of the market few years back and savings are not catching up with housing prices.

    • This is where you got your assumption wrong mate. Most of the Asian migrants came here with established wealth in their home-country and they are eager to transfer it to Australia due to different “security risks” in their home-countries up to a point of being stupid / desperate by agreeing to buy such inflated housing prices in Australia.

      Those wealthy Asian migrants prob run away from financial repression, low / no private property protection, corrupt regime, various forms of discrimination and lack of the rule of law in their home countries to feel secure even with their wealth living there. So in this situation, rational consideration of price v. value is out of their thought process.

      • I think wealthy overseas investors will park their money here rather than close shop and move here. Also if you look at housing prices growth versus loan issuing numbers they are closely related. It tells me that most buyers including migrants need to get a loan to buy a property.

        • You may be right AI that those migrants may sometimes need a mortgage to buy property here but at least they will have 20% or more deposit on the housing price though I have seen a few of them actually buy with cash 100%.

          We’re talking Asian wealthy people here which can be said fairly that their home-countries currently do not offer best prospect of “security” as I mentioned above so they are not only parking their wealth here, but they are preparing for the worst. They may still have their business in their home-countries but they surely have piled-up quite nice sums in their new adopted country like Australia, Canada, NZ etc.

          If you don’t buy it, then I suggest you go visit the suburbs in Sydney, Melbourne and Brisbane with significant Asian population and you would see various degrees of wealth being shown-off in luxury cars and residential properties both for living and investments with reasonable LVRs.
          Not really sure for other cities, but in Sydney you can try these suburbs: Chatswood, Eastwood, Epping, Strathfield, Burwood, Hurstville, etc.

          • would see various degrees of wealth being shown-off in luxury cars and residential properties..
            .. and Louis Vuitton hand bags 🙂

          • Agree with you Deo on specific suburbs, foreign cash could drive prices. But looking at the big picture, like Sydney/Melbourne market overall. Australians have borrowed and pumped something like $1trillion into housing. This is the main driver in my opinion. Few billion in foreign cash coming in is negligible relative to this. Of course if some of this is foreign cash is concentrated in a specific suburbs it will make a difference.

          • and Louis Vuitton hand bags

            Seems like you notice the big trend in those areas Mav. Yes, handbags like LV, Gucci and Burberry are on display by the ladies together with not-so-subtle diamond rings 😉

        • At least some of the loans taken out by migrants may be because of the current high value of the AUD. If you have a pile of money sitting in another country this is not the time to contemplate transferring it to Oz, given the exchange rates. In my own case for example, if and when I buy, I am likely in the first instance to take out a loan rather than transfer Euro, while I wait to see if the exchange rate improves…the amount I will pay in interest over 1-2 years is still less than the amount I would lose transferring Euro now compared to most of the last 5 years. Now will the euro increase in value…or the AUD fall, by most measures the AUD seems overvalued.

      • dumb_non_economist

        I can only think of China and maybe Vietnam that fit that profile. I certainly wouldn’t have considered that Sin, Mal,Indonesia, India, HK, Taiwan, Japan etc!

    • the argument that population level/growth = house price is unable to be proved

      it doesnt correlate looking at the data.

      • However my rooster crowing does cause the sun to come up every morning. I have the data to prove it to a person like you.

        • “I have the data to prove it to a person like you.”

          That sounds like a sophisticated argument. Perhaps you’d care to respond to the actual facts and figures in Steve Keen’s blog post linked to below?

          • In a complex system like housing it will be found that price does not correlate perfectly with any single factor.
            To understand price requires an understanding of the many factors at play.
            Simpletons who like looking at data and charts often don’t get it – hence my rooster comment.

      • Exactly.

        “Not only are these demographic factors far less volatile than house prices—and than media and popular obsession with them would imply—their correlation with changes in house prices is actually negative. The correlation of change in house prices with change in population since 2000 is -0.34, and the correlation with change in population per dwelling is even worse, at -0.41.

        The picture gets worse when you consider leads and lags: the correlation of population and population density 6 months ahead of price changes is lower than the contemporaneous correlation, and in either direction—leading or lagging—the correlation is negative.”

  11. The employment data for the real estate industry used, appears to be overstated. According to the ABS Labor Force Statistics (6291.0.55.003) there were 194k people employed in the ‘Rental, Hiring and Real Estate Services” sector in November 2011. This was a decrease of 17.5k since it peaked in Nov 2010. Obviously there is a flow on to other sectors but if we are talking about specifically about agents this might be more accurate.

  12. I’d like to comment on your opening statement :

    “Over the past year, I have written extensively on the economy-wide implications of Australia’s slowing housing market including, amongst other things, worsening government finances, slowing retail sales, and lower jobs growth.”

    This needs to be reconsidered as the housing boom is one of the most “fake” economies there are , and actually relying on it has been far more dangerous than NOT relying on it. The greatest damage to Australia’s economy has been through the destruction of our productive economy, manufacturing, services.

    Mining is a good in that it is a productive endeavor, however its distortion of the economy through its currency impact has been devastating.

    Housing should always be a controlled process which is a consequence of a productive economy, not the economy per se, ESPECIALLY when it is an entirely empty process of speculation which has absolutely no wealth creation.

    The mining boom needed to be an income redistribution to new areas of economic growth through either increased production efficiencies through technology and education or comparative advantages in other areas like agriculture, etc. Failing to redistribute the income generated into other areas of productivity increases (especially comparative advantages in the economy) means the income generated has found the path of least resistance and leaked out of the economy through speculation, both domestic – housing etc, and foreign housing, currency, etc.

    The failure to redistribute the imbalance in the Australian economy from the mining boom will be seen as our greatest failure – not a retreat from housing speculation which was merely a consequence of misallocation of resources.

    • wealth is not redistributed…

      if you want to pick and choose you should go invest some money in Solyndra

      • my 2 cents: haha, Solyndra…cost more to produce…in fact any “green/renewable” tech, based on the so-called protecting/preserving Nature against human destruction premise, has no net gain even if it successfully capture 100% of Sun ray per sqm. Gimmicks for suicidals…

  13. Using the international education digital marketing and sales analogy again, <<1% of students enrol via expensive offshore physical events hosting "fly in fly out" university etc. administrators; while 99% go direct via digital channels and/or offshore agents.

    Australian RE market via physical auctions and RE agents seems less than 1% while majority are private sale…. with digital etc. cutting out the spruikers…….

    Another productivity improvement for the Australian economy…… even better if funds brought in offshore were invested in innovative and productive industries vs getting hocked to the eye balls with debt for a place too live in……